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INDONESIAN BOND MARKET
Group 5
Aditya Sharma (A051)
Anchit Verma (A060)Ankit Kandoi (A028)
Shivam Aggarwal (A002)
Shubham Dikshit (A014)
Swati Aggarwal (A003)
Yashaswi Priyadarshi (A043)
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INTRODUCTION
In Indonesia, according to Capital Market Law, clear definition of
bonds comprises of Promissory note, commercial paper, shares, bonds,evidences of indebtedness, participation units of collective investment
contracts, futures contracts related to securities, and all derivatives of
securities.
The Indonesian government bond forms vary from conventional and
retail government bonds to government Sukuk in several tenors. Corporate and/or Public Bonds include: a) Corporate Bond and
Medium-Term Note b) Corporate Sukuk c) Convertible Bonds
Municipal bonds are issued by the province or district government for
financing public utilities projects.
Though both government and corporate bonds are listed on the
Indonesia Stock Exchange (IDX), they are mostly traded Over-the-
Counter (OTC).
Islamic bonds, which are based on shariah principles, play a major
role in Indonesian capital markets.
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SIZE & COMPOSITION
OUTSTANDING AMOUNT(billion)
1Q12 1Q13
IDR US$ IDR US$
TOTAL 1,013,454 111 1,154,804 119
Government 858,644 94 958,369 98
Central Govt. Bond 760,580 83 861,515 88
Central Bank Bills 98,064 11 96,854 10
Corporate 154,810 17 196,435 20
GROWTH RATE (%)
1Q12 1Q13
q-o-q y-o-y q-o-q y-o-y
TOTAL 2.0 (1.6) 5.9 13.9
Government 1.4 (5.5) 6.2 11.6
Central Govt. Bond 5.1 12.7 5.0 13.3
Central Bank Bills (20.4) (58.0) 17.6 (1.2)Cor orate 5.3 27.8 4.8 26.9
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MARKET STRUCTURE
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INVESTORS BREAKUP
36.46%
32.97%
10.19%
5.29%
6.89%
7.79% 0.40%
Banks
Foreign Holders
InsuranceCompanies
Mutual Funds
Pension Funds
Others
Bank Indonesia
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MARKET PARTICIPANTS
Intermediaries
a) Banks IndonesiasBanking law and Capital markets law allows banks to act
as intermediaries in Government securities trading
b) Secur ities Companies
Act as broker-dealers, underwriters and investment managers after
approval from BAPEPAM-LK
Currently there are 146 security companies in Indonesia
Rating Agencies The BAPEPAM-LK licenses local rating agencies specialising in
Indonesian debt
The two local rating agencies are Credit Rating Indonesia and PT Kasnic
Credit Rating Indonesia
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MARKET INSTRUMENTS
Promissory notes issued to BI
Hedge bonds
Fixed rate bonds
Variable rate bonds
Government
Bonds
Conventional bonds and
sharia- compliant instrumentsCorporateBonds
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SPECIALBONDS : SUKUKS
Islamic bonds structured in such a way as to generate returns to
investors without infringing Islamic law
Most commonly used structures are sukuk-al-ijarah and sukuk-al-
mudharabah
In sukuk-al-ijarah the investor gets partial ownership of the asset
which is created out of the proceeds of the bond In sukuk-al-mudharabah one partner provides capital and the other
provides managerial skills. The first sharia bonds listed on IDX
issued by PT Indosat Tbk, using mudharabah contracts
In 2004, Sharia bonds using Ijarah contracts were issued
The passage of the Islamic Sharia Debt Bill in April 2008 allowed
the Govt. to issue Islamic bonds to fund their budget deficits
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ISSUANCE & OFFERINGOF GOVERNMENT BONDS
Authority to issue government securities (or SBN), consisting of
SUN and SBSN, lies with the government represented by the MOF
The MOF should consult with BI prior to executing the governmentsecurities issuance program every year
Conducted through auction, book building, and private placement in
the local or international primary markets
Each method is governed by a corresponding Finance Minister
Regulation
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ISSUANCE & OFFERINGOF
CORPORATE BONDSAND SUKUK
Structured Process consists of the following :
Submission of Registration Statement to Conduct Public Offering
Request for Amendment and/or Additional Information
Publication of Summary Prospectus, Prospectus, and Preliminary
Prospectus
Effectivity of Registration Statement (45 days from the date the completed
or modified Registration Statement is received by Bapepam-LK)
Publication of Revision of and/or Additional Summary Prospectus
Period of Public Offering, Allotment, and Report on the Result of Initial
Public Offering (execute public offering within 2 working days when theRegistration Statement becomes effective. The period of public offering is
at least 1 working day and a maximum of 5 working days)
Shelf Registration (to enable the issuer or public company with good
performance to make a public offering of debt securities and/or sukuk
within a period of time)
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PROCESSES EMPLOYEDFORPUBLIC OFFERING
Auction Auction is used for public offering of government securities. It is
conducted by entering competitive and/or non-competitive bidsduring a predetermined bidding period via a system provided by anagent who conducts the auction of SUN or SBSN. For government
bonds, participants in the auction are banks or securities companiesappointed by the Minister of Finance as primary dealers, which areentitled to several rights and obligations.
Book Building
Private Placement
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SECONDARY MARKETA VIEW
The Inter-Dealer Market Association for Government Securities(HIMDASUN) was created in March 2003 to increase the liquidity
of the secondary bond market by facilitating price information.
The secondary market for corporate bonds is underdeveloped in
Indonesia because bondholders usually hold their bonds untilmaturity.
The trading of corporate bonds is facilitated through IDXs FITS.
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PAYMENTOF INTEREST & REDEMPTION
Bank Indonesia as paying agent pays coupon by crediting banks thatholds government bonds.
Investors banks are pre-advised of incoming funds from BI, and are
required to make these funds available to investors on couponpayment date.
If bank account and Sub-Registry are at different institutions, the
funds are credited to the investors account on payment date, but the
investor may not be able to withdraw until the following day.
Coupon interest is paid quarterly or semiannually according to the
terms and conditions of the issued bonds.
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REOPENING ISSUES
Re-openings are the offering of new securities with the same termsand conditions as an existing issue.
They are used to increase the size of an outstanding issue.
A reopened bond has the same maturity date, security identifier, andcoupon rate as the original security.
The only difference is that they have a different issue date andusually, a different purchase price based on current market yields.
Procedures for purchasing reopened issues are the same aspurchasing a new issue.
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RegulatoryAgencies
Ministry ofFinance
BankIndonesia
Bapepam-LK
Self-RegulatoryOrganizations
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ROLES
MOF
Main body responsible for the administration of finances of the
central government and for all economic and financial matters
affecting the country.
Bank Indonesia
Responsible for maintaining the stability of the rupiah, monetary
policy, payment system, and regulating and supervising thebanking system.
Acts as the central depository for the settlement and safekeeping
of government bonds and the Certificate of Bank Indonesia.
Bapepam-LK To guide, regulate, and supervise daily the capital market under
Ministry of Finance
To ensure an orderly, fair and efficient capital market, as well as
to protect the interests of the investors and public
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ROLES
Self-Regulatory Organizations
Each regulates its own areas of operations and allregulations issued by the SRO are subject to Bapepam-LK approval.
IDX (Indonesian Stock Exchange) is a private-ownedlimited company, whose shareholders are local stock
broking firms.
KPEI ( Indonesian Clearing & Guarantee Corporation) isa limited company to provide clearing and settlement,guarantee services for stock exchange transactions, and
provide securities and borrowing. KSEI (Indonesian Central Securities Depositories) is a
depository and settlement institution and performsettlement operations in scripless form.
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INDONESIAN GOVT. BONDS TERM STRUCTURE
Data as per July 16th, 2013
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Indonesian Market Characteristics Indian Market
BB+ Credit Rating BBB-
Actual/Actual Day Count Convention 30E/360
IDR 1 million Min. Tender Amount Rs. 25,000
8.1297 10- year yield (18th July) 8.08
119 Size of LCY bond market(USD bn)
835
83:17 Government: Corporate 73:27
26 Bond Trading Volume (USD bn) 1,092
13.9% Growth Rate (Y-o-Y) 24.3%
COMPARATIVE ANALYSIS
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THANKYOU
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